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DOF proposes higher VAT exemption threshold for MSMEs

The Department of Finance (DOF) is proposing to widen the value-added tax (VAT) exemption threshold for micro-, small- and medium enterprises (MSMEs) to lessen the impact of higher fuel levies on low cost businesses.

During the Senate inquiry on the DOF’s tax reform plan, Finance Undersecretary Karl Kendrick T. Chua told lawmakers that they are proposing to exempt entrepreneurs with annual gross revenues of P3 million or less from paying the 12 percent VAT.

Under the proposal, Chua said the VAT threshold on business’ goods and services would be increased from the current P1.9 million.

Department of Finance (DOF)Logo - (MD File/

Department of Finance (DOF)Logo – (MD File/

“The protection really comes from the increase in their VAT threshold to P3 million so that the micro and small enterprises with gross sales of at most P3 million will not be affected by the broadening of the VAT base,” Chua said.

But still, the finance official said MSMEs will still pay their percentage tax to the Bureau of Internal Revenues (BIR).

“Our proposal to raise the VAT threshold will help cushion the country’s vulnerable sectors, like MSMEs, from the impact of the proposed fuel excise tax adjustments and removal of certain VAT exemptions,” Chua said.

Finance Undersecretary Antonette C. Tionko also said the proposal will simplify the tax compliance of small business owners with the “complicated” VAT system.

“This is aimed to actually help the SMEs, because right now it’s at P1.9 million, over and above is covered by VAT, so it will be beneficial for them. It also will simplify things for them, they don’t have to file VAT returns,” Tionko told reporters.

Along with SMEs, the DOF is along proposing that minimum-wage earners and other members of the working class identified as those earning more than P5,000 but not over P12,000 a month would be protected from the effects of the fuel excise tax adjustments.

Chua said the government is planning to provide drivers and operators of public utility vehicles with cash cards similar to the Pantawid Pasada Program to ensure that their pass-through costs would only be around 50 centavos.

“Also, if we address the other problems of traffic, of improving their engines to make these more efficient; if we address the corruption on the streets, which we hear some authorities collect bribes from jeepney drivers, [then we probably do not need to see any increase],” Chua said.